One way to grow a business is by merging with another business or acquiring an existing business. The process is similar to beginning a new business but can also provide a head start. It is important to keep in mind when merging businesses or acquiring a business to protect the existing business. When considering a merger or acquisition as a growth opportunity, it is important to understand each and the differences between the two.
A merger refers to combining two different businesses into a single new business entity. It can be useful to merge with a business that offers different but complimentary services or products. Acquisitions, on the other hand, do not refer to the formation of a new business entity, as, in circumstances of an acquisition, the acquired company is absorbed by the acquiring company. Acquiring a business is similar to buying an existing business and can be another good growth opportunity. In some circumstances, the acquired company is liquidated in the process.
When acquiring a new business, it is important to properly valuate the business. Conducting a business valuation is an important step in the process of acquiring a business and in other instances as well. It is also important to prepare a sales agreement for the acquisition or merger. A sales agreement provides for the purchase of assets of the business or stock of a corporation. The agreement will also outline how assets will be transferred. Once the acquisition or merger is complete, it is additionally important to address any new registration requirements.
As businesses grow and enjoy success, one way to add to that growth and success is through an acquisition or a merger. Because a merger or acquisition can be a valuable growth tool, but can also be complex, it is important to understand the various aspects of a merger or acquisition to help ensure a successful transaction.
Source: U.S. Small Business Administration, “Merge and acquire businesses,” Accessed April 26, 2018